The Hindu Business Line : Palm oil may dip after correction

MALAYSIAN crude palm oil futures on MDEX ended higher on stronger soya oil prices in overnight CBOT coupled with a market-friendly export data from the cargo surveyors.

Nearby soyabean and soya oil futures at the Chicago Board of Trade settled sharply higher on Thursday with a bullish soyabean crush report. ITS on Friday put a figure of 1,022,994 tonnes for April. And, Societe Generale de Surveillance whose numbers are more closely watched by the market, gave an estimate of 1,047,132 tonnes, which was higher than market expectations.

SGS put exports for the first 25 days of the month at 849,816 tonnes. Good short covering was seen ahead of the crucial export figures. Earlier in the week, markets jumped on expectations of a strong export performance, though there were concerns earlier that April exports would be unable to match the strong performance seen at the beginning of the year.

However, volumes were thin ahead of a long weekend. The market will be closed on Monday and Tuesday to mark a Buddhist holiday and the Prophet Muhammad's birthday.

The third month active July contract corrected higher more than our expectations. Important resistance at 1884 Malaysian ringgit (MYR) a tonne has also been broken. There is potential for this correction to extend further to the trend line resistance point at 1905 MYR/tonne.

We still continue to view this current move as corrective one in nature. Only a close above 1935 MYR/tonne will negate our bearish outlook for the long term.

The weekly charts reveal the possibility of a bullish cycle getting over at 2003 MYR/tonne. As per the channel in the chart, the rising trend line resistance point is at 2035 MYR/tonne. Prices came close to it but did not test this level as we have been expecting.

The rising trend line support point for this channel is close to 1500 MYR/tonne. Using elliot wave analysis, we could be in the last leg of wave "A". This would be followed by an upward correction in Wave "B".

The move to 2003 MYR/tonne is the end of the fifth wave impulse and a move from there is a corrective wave "A" targeting 1750 MYR/tonne levels.

RSI is now in the neutral zone indicating that it is neither overbought nor oversold. The positive divergence we identified on RSI has seen also helped in last week's pullback. The averages in MACD, continues to be below the zero line in the indicator in spite of the pullback.

Current prices are higher than the short-term 8-day EMA at 1865 MYR/tonne and the 34-day EMA is now at 1880 MYR/tonne.

Look for prices to head lower after the correction gets over. Supports, at 1865, 1850 and 1810 ringgits. Resistances, at 1893, 1905 and 1935 ringgits.

(The author is associated with the Multi Commodity Exchange of India (MCX). The views expressed in this column are his own and not of MCX. This analysis is based on the historical price movements and there is risk of loss in trading.)

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